If you are new to the world of cryptocurrencies, the buzz of jargon can be overwhelming. Indicators, Oscillators, Moving Averages, Bollinger Bands – it all feels like a foreign language.
But don’t worry – we’re here to help break it down in a simple and easy-to-understand manner. In this article, we’ll introduce you to 5 technical indicators that are commonly used to analyze Ethereum futures price movement. By the end, you’ll have a good understanding of what these indicators are and how they can be used to help you make informed trading decisions.
So let’s get started!
5 Indicators to use while Analyzing Ethereum Futures Price Movement
Moving averages smooth out price fluctuations by averaging out the prices over a certain time period. For example, a 200-day moving average will take the average price of a cryptocurrency over the past 200 days and plot it on the chart.
There are several types of moving averages, such as simple moving averages (SMAs) and exponential moving averages (EMAs). SMAs take the average of a set number of price data points and plot the result on the chart, while EMAs place a greater weight on more recent data points.
Moving averages are often used in conjunction with one another to provide a more comprehensive view of the market.
Bollinger bands are a certain technical analysis tool that consists of a moving average and two standard deviations plotted above and below the moving average. They are often used to identify trends and potential breakouts in the price of a cryptocurrency.
The Bollinger bands indicator is named after its inventor, John Bollinger, who developed the indicator in the 1980s. Bollinger bands are plotted on a chart as three lines: a moving average in the middle, with an upper band and a lower band plotted a certain number of standard deviations above and below the moving average.
The distance between the bands widens and narrows as price action fluctuates, with wider bands indicating higher volatility and narrower bands indicating lower volatility. When the bands are wider, it might suggest that there is a high level of uncertainty in the market, while when the bands are narrow, it suggests that there is a low level of uncertainty.
Relative strength index (RSI)
A specific momentum indicator called the relative strength index (RSI) assesses the size of recent price moves to identify overbought or oversold conditions. It is frequently used to locate prospective market buying and selling opportunities.
The RSI is calculated using a formula that compares the magnitude of latest gains to recent losses over a given time period. It is plotted on a scale from 0 to 100, with an RSI above 70 generally considered overbought and an RSI below 30 considered oversold.
Traders and analysts often use the RSI to identify potential reversals in the market. It’s important to note that the RSI can be subject to false signals, particularly in range-bound markets, so it’s important to use it in conjunction with other indicators to confirm potential trade signals.
On-balance volume (OBV)
On-balance volume (OBV) is another momentum indicator that uses volume data to show whether buyers or sellers are in control of the market. It is often used to confirm price trends and to generate buy and sell signals.
The OBV indicator comes from the idea that price and volume are related, with rising prices typically accompanied by increasing volume and falling prices accompanied by decreasing volume. The OBV is calculated by adding the volume on up days (days when the price of Ethereum is higher than the previous day) and subtracting the volume on down days (days when the price is lower than the previous day).
A rising OBV suggests that buying pressure is increasing and that the price of the cryptocurrency is likely to rise. Conversely, a falling OBV suggests that selling pressure is increasing and that the price is likely to fall.
OBV can be used in a variety of ways, including identifying potential trend reversals and confirming price trends. It can be used to finalize other technical signals as well, such as breakouts from moving averages or Bollinger bands.
Moving average convergence divergence (MACD)
Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator used to evaluate the relationship between two specific moving averages. It is commonly used to identify trend changes and potential buy and sell signals in cryptocurrency prices.
The MACD is determined by subtracting the 26-day EMA from the 12-day EMA. Results are displayed as lines on the graph, with horizontal lines (“signal lines”) representing a specified number of standard deviations above and below the MACD line.
Traders and analysts often use the MACD to identify potential trend changes and generate buy and sell signals. For example, when the MACD line crosses the signal line, it could indicate an uptrend and could be a good time to buy. Conversely, if the MACD line breaks below the signal line, it could indicate a bearish trend and could be a good time to sell.
Technical indicators are a valuable tool for analyzing the price movement of cryptocurrencies. By using a combination of indicators, traders and analysts can gain a more comprehensive view of the market and make informed trading decisions. Especially with derivatives like Eth futures, technical indicators can indeed be of great help.
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